VAT OSS and IOSS (import-one-stop-shop) from 2021: a huge challenge for Swiss e-commerce
Cross-border e-commerce is experiencing a continuing boom and is therefore growing at an extraordinary rate. Never before has it been so easy to reach and supply consumers on the other side of the border. But: international e-commerce does not only concern IT, logistics and marketing, but also topics that are less sexy. Like taxes, for example. But what must be, must be. We will help you and present the two new systems IOSS and OSS.
IOSS and OSS - what does that actually mean?
It is expected that there will be a major change in the VAT system starting at the 1 July 2021. It will affect B2C mail order companies doing business with or within the EU. The so-called VAT E-Commerce Package is an innovation of the European VAT system with which Brussels is pursuing three main objectives:
- Facilitate cross-border trade by simplifying the VAT invoicing process
- Combating VAT fraud
- Ensuring fair competition for EU companies. This means abolishing the € 22 exemption limit for imports of small consignments from third countries
But one thing at a time! First, we will concentrate on today's intra-European VAT accounting - and how Brussels intends to changeit.
The current VAT situation in Europe
Here is an overview of how the current VAT statement works:
As an example here we use a Finnish e-commerce retailer. He sells his products to private customers who live in other countries in Europe.
Turnover thresholds are relevant
Today, the Finnish retailer benefits from various country-specific turnover thresholds, ranging from €35,000 to €100,000. This means that as long as the country-specific sales remain within this range, the Finnish retailer can charge Finnish VAT.
However, as soon as, for example, his turnover in Germany exceeds €100,000, the online retailer from Finland must register in Germany and settle the German VAT with the German tax authorities on a monthly basis. This example applies to every EU country, of course.
VAT brake to be removed
The EU estimates that such registration costs an EU company on average €8000. The EU finds this too high. This amount is clearly a brake on intra-European cross-border e-commerce. So a new and simpler solution was needed!
The new value-added tax statement is called OSS
OSS will be introduced from 1 July 2021. OSS stands ford One Stop Shop. But what does this mean for our Finnish online retailer?
The current country-specific turnover thresholds will be abolished as of 1 July 2021. A new Europe-wide turnover threshold of €10,000 will be introduced.
New turnover threshold €10'000
For Finnish e-commerce merchants, this means that they can charge their Finnish VAT up to a foreign turnover of €10,000. If his foreign turnover - attention: not per country, but in the whole EU!- exceeds this amount, he must charge the VAT rate of the destination country.
Transparency in the webshop
For his web shop, this means that he has to show and charge the VAT rate of the destination country. By the way, modern shop systems can easily implement this.
Finally, once a month, the Finnish trader transfers the collected foreign VAT amounts to the Finnish tax authority using the One-Stop-Shop portal. This OSS portal will probably be a web service that the trader can access by means of a login. The Finnish tax authority will then distribute the amounts to the respective EU countries in which the end consumers live.
Register once and you're done
The great advantage of the OSS system is that the Finnish trader no longer has to register in all EU countries. A single OSS registration is sufficient to display and account for the respective foreign VAT rate.
Note: The OSS cannot be used for domestic VAT invoicing!
The OSS system is therefore a very efficient solution for EU traders, which will greatly simplify and also strengthen cross-border e-commerce.
But what does the system mean for Swiss traders who ship to the EU?
IOSS: the OSS for non-EU traders
From 1 July 2021, the EU will also offer a VAT solution for non-EU traders who sell their products to customers in the EU. It is called IOSS. This abbreviation stands for Import One Stop Shop. Like the OSS, it is used for the simple billing of VAT receipts. However, the use of IOSS is voluntary.
And this is how IOSS works: First of all, a Swiss retailer must register for it . However, he cannot do this registration himself, but needs an intermediary who is resident in the MSI (Member State of Identification) - a kind of fiscal representative. This agent will register the Swiss trader with the IOSS and will be responsible for monthly European VAT invoicing and payment.
Show VAT rates on webshop
Like the EU trader, the Swiss online trader will have to communicate the respective VAT rates of the destination country in his web shop. For goods shipments to Germany, this means the German VAT, for France the French VAT etc.
However, Swiss online traders do not report and transfer the various VAT amounts to the Swiss tax authorities on a monthly basis, but to the MSI.
The Swiss trader therefore reports the total EU VAT amounts to his EU intermediary on a monthly basis. The latter then ensures that the VAT accounting and payment is carried out.
Turnover threshold does not apply here
There is also a striking difference to OSS: With IOSS, the Swiss retailer will not be able to profit from the €10,000 sales threshold. Instead, they will have to display and communicate the respective country-specific VAT rates in their web shop from the first euro of sales.
Value of goods limit is relevant
Another important difference is worth mentioning: In contrast to OSS, the €150 value limit applies. The Swiss retailer can only register consignments with an intrinsic value of goods (i.e. the value of the goods excluding VAT and transport costs, these must be shown separately) of max. € 150 in the IOSS and thus send them. Consignments exceeding this value may not be sent via IOSS, they need another solution. The basis for the goods value limit is the check-out value of the order.
IOSS is therefore an ideal solution for retailers who ship goods for less than € 150. A simple registration is sufficient and they can send goods by post to any country in the EU without having to pay customs duties and taxes on receipt. So they shop without unpleasant surprises.